Secrets of 401(k) Success: Affordability and minimizing costs
By establishing a 401(k) plan at your business, you give your employees a way to save toward a secure financial future. Plus, you add a valuable employee benefit that will help you attract and keep the brightest and best employees. It’s a win-win.
But not all 401(k) plans are built for success. In order to effectively help your employees achieve their retirement goals, you need to consider five key criteria.
In this blog series, we’ll take a closer look at each one, starting with minimizing costs and ensuring the plan is affordable for you and the participants.
The fees you may not see
Administrative fees in a 401(k) plan can add up fast, but most employers and participants don’t fully understand what the fees are or even realize that they’re paying fees. According to a TD Ameritrade survey of 1,000 investors, only 27% knew how much they’re paying in 401(k) fees. Yet 95% of 401(k) plan participants pay fees.1
These fees can vary greatly, depending on the size of your 401(k) plan, the number of participants and the plan provider. Larger plans typically have lower fees than small plans, with fees ranging as high as 3-4% of the participant’s account balance—especially with plans offered by insurance companies. The final outcome for a participant can amount to hundreds of thousands of dollars in the final account balance if fees are not monitored. Participant fees include:
- Third-Party Administrator (TPA)
- Financial Advisor
- Mutual fund expense
- Government filings
Employer fees might be explicitly listed on your invoice, but participant fees aren’t always clearly disclosed. Often these fees can only be found by carefully reading the plan design documents and agreements.
The employer’s personal fiduciary obligation
If you are the plan sponsor for your 401(k), you have a personal fiduciary obligation to benchmark and understand all the fees that are associated with the operation of the plan and to make sure your company’s plan ultimately ends up benefiting the participants.
Employers are not protected from ERISA personal fiduciary liability by the “corporate veil”. This is a legal concept that separates the personality of a corporation from the personalities of its shareholders and protects them from being personally liable for the company’s debts and other obligations. It is not relevant to sole proprietorships and general partnerships, as these business entities inherently do not have personal liability protection. The owners of sole proprietorships and general partnerships are responsible for business debts, with potential risk to their personal assets.
A better alternative
There are options that enable you to offer your employees an affordable 401(k) and minimize your risk. Apollo Wealth Management works with employer member associations, such Value Point Associates (VPA), that offer competitive 401(k) plans at a significantly lower cost. And as plan sponsor, they assume the majority of plan administration responsibilities and risk.
Contact Apollo Wealth Management at Billo@apollowm.com or 716-783-1610 to find out more. And be sure to watch for our next blog in the “Secrets of 401(k) Success” series.
1TD Ameritrade. "That 401(k) Plan Might Be Costly: New Tool Shines Light on Fees." Accessed May 17, 2020.